FGL Sports Q1 Get Boost from Team Canada Sales

Sales at FGL Sports, the parent of Sport Chek, grew 1.7 percent in the first quarter ended Mar. 29, to Canadian $379.4 million ($349.0 mm), according the quarterly report of its parent, Canadian Tire. Same-store sales at FGL Sports rose 6.4 percent on top of a 9.4 percent comp gain in the year-ago quarter.

Same store sales at Sport Chek, FGL Sports' core corporate banner, JUMPED 11.9 percent in the quarter. Sales were helped by the positive customer response to Olympic performance and Team Canada hockey apparel supporting the Sochi Olympic Winter Games.

“We were really pleased with sales of Adidas Olympic wear, and Nike Olympic hockey jerseys, but even without those sales, Chek would have been up double digits,” said Michael Medline, Canadian Tire’s president, on a conference call with analysts. “Sales were strong across all apparel categories, and in our hard goods business.”

At the end of January, FGL Sports opened its first flagship store, an 80,000 square foot combination Sport Chek/Atmosphere store in West Edmonton Mall. Added Medline, “Customer reaction results have been outstanding, and our next flagship will open in the fourth quarter in Burnaby.”

Besides Sport Chek and Atmosphere, FGL Sports’ corporate and franchise banners include: Sports Experts, Pro Hockey Life, Hockey Experts, National Sports, Intersport, and S3. Pro Hockey Life was acquired in August 2013.

Consolidated retail sales gained 1.2 percent to C$2.46 billion ($2.27 bn). Among its other concepts, comps were down 0.5 percent at Canadian Tire and up 2.9 percent at Mark’s. The gains came despite the late arrival of spring weather.

“We saw the momentum from a very positive 201 Olympic for the balance of the year,” said Stephen Wetmore, CEO, Canadian Tire Corporation. “Early in the new year, the 2014 Olympic Winter Games presented an opportunity for Canadian Tire, Sport Chek and Sports Experts to increase customer affinity for the retail brands through new marketing initiatives. The results of the campaigns and customer feedback have been tremendous and were reflected in sales of Olympic-related merchandise.”

Income before income taxes in the Retail segment was C$16.6 million ($15.3 mm) in the quarter, down 28.2 percent over the prior year. This reflects the impact of the operations of CT REIT during the quarter including the payment of rent expense at market rates for properties acquired by CT REIT. The earnings also reflect a gain in retail margin rate of 158 basis points, due to a higher margin mix of sales across the FGL Sports and Mark's businesses, the addition of Pro Hockey Life, and some costs related to timing of payments at Canadian Tire. These were offset by planned increases in marketing and advertising expenses due to Olympic and sport sponsorship activities and higher stock-based compensation expenses.

Companywide, Canadian Tire Corp. reported consolidated revenue increased 3.8 percent to C$2.57 billion ($2.4 bn) as a result of higher shipments in key categories at Canadian Tire, strong sales at FGL Sports and Mark’s, increased gasoline prices and higher non-gasoline sales at Petroleum. The gains were also boosted by increased credit card charges related to gross average receivables growth at Financial Services.

Consolidated net income increased 3.6 percent to C$75.6 million ($70.0 mm), or C88 cents (81 cents) a share, largely reflecting strong gross margin contributions from the Retail segment as well as solid revenue from accounts receivable in the Financial Services segment.. This was offset by a planned increase in selling, general and administrative expenses that included marketing and advertising expenses related to the Olympics and increased stock-based compensation expenses.

Asked if FGL Sports will face particularly tough comparisons anniversary the Olympics in 2015, Medline noted that February is a “relatively small month,” and more seasonally-warm weather may arrive in March 2015. But he said its Olympics support as well as similar ongoing efforts around Major League Soccer help create a “halo effect” that promise to support its sports banners long after major events.

“We didn't invest in the Olympics, because we could sell some merchandise during the Olympics or get a small pop,” said Medline. “We've done that as a long-term deal to grow our brand. And that's what we're all about. And you can see in our banners, and you see it in Sport Chek, what it means when you can take the brand up, especially with your targeted customers.”